Tether USDT the US Governments Partner in financing US Government Debt

15 comments

Tether and the US Government could become very good friends.

Who is Tether? What is USDT?

Tether, is a $143-billion stablecoin giant, was the world’s seventh-largest buyer of US Treasurys, surpassing some of the world’s largest countries. Tether is the world’s largest stablecoin, was the world’s seventh-largest US Treasury buyer, surpassing Canada, Taiwan, Mexico, Norway, Hong Kong and numerous other countries.

Potential relationship between Private Stablecoins like Tether and the US Government.

In this post I examining the potential relationship between stablecoins and US government debt involves considering how these digital assets could influence the demand for Treasury securities.
The idea that stablecoins could become a significant factor in financing US debt stems from the nature of how some stablecoins are backed and the potential for growth in the stablecoin market.

How could this friendship develop?

Some stablecoins are designed to maintain a stable value relative to a traditional currency, such as the US dollar. To achieve this stability, issuers often hold reserves denominated in that currency or in highly liquid, low-risk assets like US Treasury bills. As the stablecoin market grows and more of these assets are held as reserves, it could potentially lead to increased demand for US government debt.

My hypothesis

This perspective suggests a scenario where the growth of the stablecoin market could create a new and significant class of buyers for US Treasury securities. This demand could be particularly relevant at times when traditional buyers might be seeking alternative investments or when the government needs to issue a large amount of debt.
The potential for this relationship to develop depends on several factors, including the regulatory environment for stablecoins and the continued growth and adoption of stablecoins in the broader financial system. If stablecoins become a more widely used form of digital currency, the reserve assets held to back them could become a notable source of demand in the Treasury market.

I think recent laws passed in America suggest that the financial envirnment is developing to support such a partnership and private business opportunity.

The connection between stablecoins and US government debt has become more direct with the recent passage of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act of 2025. This law provides a clear regulatory framework that solidifies the role of US dollar-backed stablecoins in reinforcing demand for US Treasury securities.

Here is how the GENIUS Act specifically links stablecoins to US government debt:

Mandated Reserves in US Treasuries
The GENIUS Act requires stablecoin issuers to back their tokens on a 1:1 basis using highly liquid, low-risk assets. The approved assets for these reserves include US dollars, deposits at insured banks, and crucially, short-term US Treasury bills. As the stablecoin market grows, issuers will need to acquire more of these assets to maintain their required reserves, directly increasing the demand for US debt.
Bolstering the US Dollar's Global Position
A key objective of the GENIUS Act is to ensure the continued global dominance of the US dollar. By creating a clear and safe regulatory environment for dollar-backed stablecoins, the US is encouraging their wider adoption for global payments and settlements. This increased international usage reinforces the dollar's status as the world's reserve currency and ensures a growing foreign demand for US debt.
Providing Regulatory Certainty
For years, a lack of clear regulation created uncertainty for stablecoin issuers and investors. The GENIUS Act changes this by creating a formal regulatory system that establishes rules around licensing, reserve requirements, and issuer conduct. This clarity fosters stability, which encourages more investment and growth in the stablecoin market. The growth, in turn, drives the demand for US Treasury bills, which constitute a significant portion of stablecoin reserves.
Explicit Requirement and Prohibition
The legislation explicitly requires stablecoin issuers to hold their reserves in high-quality, liquid assets and bars them from paying interest on stablecoin holdings. The prohibition on interest is designed to prevent stablecoins from competing with interest-bearing bank deposits and money market funds. This reinforces the role of stablecoins as a payment instrument rather than a yield-generating investment, further driving reserve investment into US Treasuries as a safe and stable backing asset.

Impact on Debt Financing

The overall impact of the GENIUS Act is to formalize and accelerate the trend of stablecoins acting as a new source of demand for US government debt. Instead of a hypothetical scenario where stablecoins might buy treasuries, the law explicitly requires and incentivizes this behavior.
This development creates a new, domestic-controlled buying base for US debt instruments, particularly at times when other traditional buyers might be less active.

Lastly, I think many banks and financial institutions are going to create a stablecoin or similar product, so they can get marketshare for this lucrative business.
What do you think?